Thursday, 7 September 2017

Scotland's Deficit Figures Show that the UK Works

Last week the Scottish Government published their annual
Government Expenditure and Revenue Scotland (GERS) report.

The figures were good news for those Scots who believe in
the value of pooling and sharing resources across the UK, bad news for those
who believe Scotland should be independent (or for some reason needs to be
fiscally autonomous).

The UK’s deficit is running at 2.4% of GDP and, because
Scotland voted No in 2014, that fiscal context determines Scotland’s ability to
continue to sustain spending on vital public services. By contrast, Scotland’s
notional stand-alone deficit according to GERS is 8.4%. The EU’s “excessive
deficit” threshold is 3.0%. Even before considering the challenges of creating
a currency and weathering the shock of separation from the UK single-market – a
market objectively four times more important to Scotland than the EU - it’s
clear that an independent Scotland wouldn’t be able to sustain the tax and
spend levels described in GERS.

The SNP’s Independence White Paper predicted that this year under current constitutional arrangements
Scotland’s deficit would be 1.6 – 3.2% of GDP. This means that their starting
point, the base on which they attempted to build their economic case, was out
by £8.1 - £10.7 billion a year. The main reason for this shortfall is that the
SNP famously used recklessly optimistic oil revenue forecasts of £6.8 – 7.9 billion
for 2016-17. The actual figure has turned out to be just £200 million.

The reaction of the SNP and their pro-independence outriders
to last week’s completely unsurprising figures laid bare the astonishing
paucity of their economic arguments. The SNP once proudly proclaimed that they had Nobel
Laureates championing their cause. Now they’re reduced to relying on the
increasingly embarrassing contributions of accountant and tax specialist Professor
Richard Murphy, the man who suggested that John McDonnell was “all too willing to accept
conventional neoliberal thinking”.

Murphy’s argument is basically one of incredulity: he simply refuses to believe the GERS figures
can be correct because he doesn’t understand them. He casually advertises his
ignorance of how the figures are compiled by admitting to being “continually
bemused” because he thinks the numbers are somehow “improbable”.

The graph on this page illustrates the simple truth that the
perpetually befuddled Professor Murphy seems unable to grasp.

The three lines show 19 years of relative spending and
revenue per capita for Scotland versus the rest of the UK (rUK). The picture is
clear: Scotland’s per capita deficit is much larger than the rest of the UK’s
mainly because of higher spending. When oil was booming, Scotland’s revenues
were sometimes enough to largely offset that higher spend, but as oil revenues
have declined the underlying onshore deficit gap has been exposed.

Professor Murphy attempts to obfuscate and misdirect on this
point, but the per capita spending difference
shown by GERS has nothing to do with estimates or allocations, it is fully
explained by known actual figures. Nobody disputes that more is spent per
capita in Scotland then the rest of
the UK on social protection, education, housing, health, transport and pretty
much every other area of public spending. There isn’t anything inherently
unfair about this either; Scotland has geographic, demographic and
socio-economic characteristics which mean greater per capita spend is required
to deliver equivalent services. So there’s really nothing bemusing or
improbable about the relative scale of Scotland’s deficit. Surely only the most
desperate politician would lean on rent-a-quote Professor Murphy’s transparently
misguided proclamations for support?

Which brings us to SNP MP Mhairi Black. Not only did she use
a recent newspaper column to cite Professor Murphy as reason to dismiss her own
government’s figures but, in an incredible display either of ignorance or
dishonesty, she claimed £15bn had been found “missing from Scotland’s oil
revenues in the last few years”. The opposite is In fact the case. Scottish
Government economists have accepted that their previous Scottish oil revenue assumptions
were overly optimistic and have restated historic figures down by £7bn over the last decade.

It gets even worse. Ms Black joined SNP MSP Joanna Cherry QC
in endorsing the suggestion that low oil revenues are Westminster’s fault for
not taxing the North Sea oil industry heavily enough in the last few years. Have
they really forgotten that the SNP sought to protect Scottish jobs by calling
for tax cuts for the embattled North Sea oil industry, then celebrated those
cuts as a victory for their party when they came?

The pro-independence camp likes to suggest that the GERS
figures show Scotland failing under the yoke of Westminster rule. In fact they
show UK-wide sharing of resources allowing greater spending on public services
in areas with greater economic need; only the most narrow-minded nationalist
could see that as a failure.